Free working capital estimator for SMEs. Calculate your cash conversion cycle and funding requirement.
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⚠️ Estimates only. Not financial advice. Consult a licensed professional.
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Working capital is the lifeblood of any trading, manufacturing, or service business. It represents the cash available to fund day-to-day operations — paying suppliers, covering salaries, maintaining inventory, and bridging the gap between when you deliver goods or services and when you actually receive payment. Understanding your working capital requirement precisely determines how much to borrow and which facility type is right for you.
Cash Conversion Cycle (CCC) = Inventory Days + Receivable Days − Payable Days
Where:
Inventory Days = Average days inventory sits before being sold
Receivable Days = Average days customers take to pay after purchase
Payable Days = Average days you take to pay your suppliers
Example (Trading Business):
Inventory Days: 30 (stock turns monthly)
Receivable Days: 45 (customers pay in 45 days)
Payable Days: −15 (you pay suppliers in 15 days)
CCC: 60 days
Daily Revenue: ₹10,000 → Working Capital Gap: ₹10,000 × 60 = ₹6,00,000
Recommended WC Limit: ₹6L × 1.25 (buffer) = ₹7,50,000
Cash Credit (CC): A revolving credit limit from which you can draw any amount up to the sanctioned limit and repay as receivables come in. Interest is charged only on the actual amount drawn, not the full limit. This is the most flexible and cost-effective working capital product for businesses with variable cash flow patterns.
Overdraft (OD): Similar to Cash Credit but linked to a current account. The facility operates as a negative balance in your account. Useful for businesses with regular banking activity where the overdraft naturally oscillates between drawn and repaid states.
Invoice Discounting (Bill Discounting): You present outstanding invoices from creditworthy corporate buyers to the bank, which advances 80–90% of the invoice value immediately. The buyer pays the bank on the invoice due date. Rates: 12–16%. Best for businesses with large corporate clients on 30–90 day payment terms.
Working Capital Term Loan (WCTL): A fixed-amount loan disbursed in one shot with regular EMIs. Less flexible than CC/OD but simpler to obtain for newer businesses without extensive banking relationships. Used for funding specific cyclical needs like stocking up before a festival season.
The Nayak Committee Method is the most widely used: 25% of projected annual turnover as the working capital limit. A business projecting ₹2 crore annual turnover would receive a WC limit of ₹50 lakhs under this method. Banks supplement this with 12 months of bank statement analysis, debtor/creditor ageing reports, and stock statements. Prepare all three documents before applying.
Before borrowing for working capital, explore operational improvements that reduce the cash conversion cycle: (1) Negotiate longer credit periods with suppliers — extending from 15 to 30 days payable reduces WC requirement by one month of daily expenditure. (2) Offer early payment discounts to customers — even 0.5–1% for payment in 15 instead of 45 days dramatically improves receivable days. (3) Implement vendor-managed inventory to reduce the capital tied up in stock. (4) Use factoring for receivables from large corporate buyers — typically faster and cheaper than a WC loan for high-value, creditworthy invoices.